Retirees gone wild!
In today's Washington Post, columnist Robert Samuelson urges readers to stare at the following figures. Keep your eye on the bolded second line:
Federal budget, 1956
Defense: 57%
Social Security and other payments to individuals: 21%
Other programs: 14%
Net interest on debt: 8%

Federal budget, 2006
Defense: 19%
Social Security and other payments to individuals: 59%
Other programs: 15%
Net interest on debt: 7%

Note that "other payments to individuals" includes Medicare, Medicaid, food stamps and the earned-income tax credit, among other things. It's a neat comparison, what with the way the numbers for defense spending vs. Social Security, etc. have flipped almost exactly. So what's the point? Samuelson says this helps explain why Washington's budget battles are now, and will always be, intractable: So much government spending is so important to so many constituents that it's hard to cut anything big. And nobody wants taxes raised, of course. This isn't a bad political analysis, and I like his point about the futility of the media raging against some wasteful but comparatively dinky $20 million program. But why contrast today with 1956? Was defense spending not important then? Would it have been any easier to raise taxes? (The top marginal rate was 90%!)

Implicit in all this, I think, is that what Samuelson calls "the welfare state" has grown out of control. Even if that's not Samuelson's point, I'm pretty sure that's what most readers will take away after the first couple of paragraphs. And you are perfectly entitled to think that. But some context would help. Consider this oversimplified comparison:
Joe Schmoe's monthly budget, 1996
Rent and utilities: 70%
Food, clothes, entertainment, and other discretionary spending: 30%

Joe Schmoe's monthly budget, 2006
Rent and utilities: 35%
Food, clothes, entertainment, and other discretionary spending: 65%
Wow, Joe's consumer spending more than doubled! He's suddenly turned into quite a spendthrift, right? Well, Joe should certainly start thinking about putting some money into a 401(k). But what really changed here is Joe's income. In 1996, young Schmoe was just out of college and had to devote the better part of his temping paycheck to the rent on his fleabag apartment. But he's done a lot better since then--he got a real job, a few promotions, and now his income is way up. He's been been able to move to a better apartment, but even so, Joe doesn't have devote so much of his resources to covering the basics. He can afford to go to the Pottery Barn and buy some decent furniture.

Likewise, America is richer than it was in 1956. Despite the growth of "welfare" programs (blogging economist Mark Thoma quibbles with the label here) the size of government, measured by spending, hasn't really changed relative to the size of the economy. Accoding Gene Steuerle's invaluable guide, Contemporary U.S. Tax Policy, total tax receipts, including state and local, have gone from about 23% of GDP to about 26% since the '50s. A richer country can afford to do more than pay for basics like national defense--it can help to provide for its aged and disabled, offer food aid for poor children and their families, and provide at least a floor benefit for health care. Yes, it can also waste a lot of money in the process, or create bad incentives. And given the projected growth of Social Security and Medicare, spending decisions about what we can afford are going to get more difficult in the future. But if we're doing historical comparisons, let's have some perspective about what the past really looked like. Anybody want to go back to the economy of 1956?
Posted by Pat Regnier 2:19 PM 5 Comments comment | Add a Comment

If we cut our current military spending in half we would still have the highest percentage of military-spending-to-GDP of any major economy, and still spend more of our GDP on it than the global average (including nations that bump the average way up because they have to spend 38% of GDP to buy 4 guns and a Land Rover).
If we cut our military spending by 60%, we would still be in the top 3 major economies on a percentage basis (but still dramatically outspending them on a true basis). We spend more on our military than the rest of the world, combined. We could cut our military spending by 88% and still be spending more on military than any other nation in the world. Cutting our military spending in half would make our share of world military spending equal our share of the world economy (28%).

Common sense tells us we're spending way too much on a military. I'm not saying that money should simply go to MORE social programs; but it certainly could be used to pay down debt, keep social program obligations, and put a little more money back into the hands of citizens.
Posted By Brandon W, Ann Arbor, MI : 3:22 PM  

The government isn't "spending" on social security. It's paying back the money we have been saving through a forced savings plan called FICA. If the government didn't rob social security money to finance boondoggles in Vietnam and Iraq, retirees would be much more secure today, and our children would have health insurance and better education.
Posted By Nicholas McGray, New Britain, CT : 10:07 PM  

Social Security has to pay out "more" in numerical dollars than we paid in, because of inflation. This, aside from all the weird rules. For example, a divorced wife (same for husbands, but I'll use wife for simplicity) who was married for ten years is entitled to a 50% SS payment on the former husband's account. By age 65 a man could have had four of these, and since there is no impact to this multiple husband, the actual cost to SS could be three times that husband's entitlement. And then, the husband could take a fifth wife, who if old enough would also get 50%.
Posted By Gindun Rintingan, Dundas Minnesota : 5:00 PM  

Since many retirees no longer have pension plans, and age discrimination in employment is rampant -- even for those who are qualified (and there are many), what are seniors supposed to do? Accommodate the country by dying early? Now the Republicans want to cut back on Soc Sec, Medicare, etc., to finance that disaster in Iraq we call a war. A very large percentage of seniors depend on Soc Sec just to pay the rent and buy food. And, in my case, I had a husband who had extensive medical bills--cancer, open heart surgery and Alzheimer's. I suppose there are some of the greedy Republicans that would have preferred that he be killed in order to save $. I took care of him 24-7 for 5 years with almost no outside help. Is this Republican "compassionate conservatism?"
Posted By Alice Thomas, Sacramento, California : 7:40 PM  

You're missing the point about military spending. Military spending is a few hundred billion dollar investment in spending that goes nearly entirely into companies in the U.S. economy with a trickle-down across the board. That's why Joe Schmo and millions of his friends make a good salary supporting the hundreds of thousands of U.S. companies supporting military contracts. Now if you give that same money to Joe Schmo in a check via a govt program he will invest those dollars in China's economy via consumer spending in the form of the DVD player he buys at Walmart. What do you think happens when we take $500B spent with U.S. military companies and send it directly to consumer spending on low-cost foreign products made by overseas workers?
Posted By John, Cary, NC : 7:44 PM  

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